Q: MCan Financial is selling 1.6M shares at $15.40 to raise $25M. This is about 5% of their market cap. What is your feeling on this dilution and how do you see it affecting their dividend? I have enjoyed their high dividend for many years and am now wondering if this is a worrisome sign, or is it a cheaper way to raise operating capital? The drop today brings the price to close to the $15.40 mark. Do you expect the price to fall further once the offering is closed and people try and sell their shares?
5i Research Answer:
An overnight deal does typically include a discount, but it is a much faster way of raising money than a rights issue to shareholders. With a short time frame there is minimal market risk (i.e. for the stock to decline for whatever reason). The company is not saying, but there could be reasons that are not necessarily negative, such as interest from a large potential new shareholder or an portfolio-acquisition opportunity. We would not see it as overly negative and would not expect the dividend to be impacted. The shares should settle in and we would not expect further declines just on this news.